Feb. 19 (Bloomberg) -- U.S. stocks may rally as much as 15 percent this year if economic growth accelerates past 3 percent, according to Jeremy Siegel, a professor of finance at the University of Pennsylvania’s Wharton School of Business.
“I can easily see the market going up another 10 or 15 percent,’” Siegel said today in an interview on Bloomberg Television’s “Street Smart” with Trish Regan. “If we can get the economy going toward 3, 3.5 percent or higher, there’s still hope.”
Siegel, author of the book “Stocks for the Long Run,” said in a Bloomberg Television interview on Dec. 27 that the S&P 500 would rise 10 percent this year. He correctly predicted in April that the Dow Jones Industrial Average would end the year above 16,000. The gauge finished at a record 16,576.66.
The Standard & Poor’s 500 Index has retreated 1.1 percent this year after rallying 30 percent in 2013 for the biggest gain since 1997. A 15 percent rally in 2014 would put the gauge at a record 2,125. The average year-end forecast of 21 strategists surveyed by Bloomberg is 1,956.
Siegel said stocks still remain cheap relative to historical measures.
“If we were looking at 22 or 25 times earnings, I would worry,” Siegel said. “But we are not. We are still at a low- to-average price-to-earnings ratio, so I don’t think we are yet ahead of ourselves.”
The S&P 500 trades at 16.9 times earnings, less than in previous bull markets. Valuations during the 2002-2007 rally averaged 18.8, and in the last two years of the 1990s, the average was 28.1, according to data compiled by Bloomberg.
The U.S. economy grew at a rate of 1.9 percent last year and is estimated to expand by 2.9 percent in 2014, according to the median projection of economists surveyed by Bloomberg. First-quarter growth is forecast at 2.2 percent.
The S&P 500 dropped as much as 5.8 percent from an all-time high on Jan. 15 amid growing concern that growth was slowing in China and a rout in emerging-market currencies.
The index has recovered most of that decline as investors have dismissed weaker-than-forecast economic data over the past two weeks as Federal Reserve Chair Janet Yellen indicated growth was strong enough to withstand further cuts to monetary stimulus.
Three rounds of Fed bond buying have helped the S&P 500 rally as much as 173 percent during a bull market that began almost six years ago.
If growth begins to pick up, “I think this bull market has room to grow,” Siegel said.
--Editors: Jeremy Herron, Jeff Sutherland